So where are we now?

The dust has started to settle after the draconian cuts put forward by the Chancellor, George Osborne, last week, as he put forward plans to cut government spending by £81 billion over the next four years.

Was he right to make cuts of this magnitude? The UK borrowing figures last week might suggest that he was. The figures show that the government borrowed a record £16.2bn in September, which is the highest figure for September on record. This was an increase on the figure of £14.8bn for September borrowing last year, and was by-and-large unexpected.

This means that the UK’s total net debt is the highest ever, representing 57.2% of GDP. We have seen total government borrowings this year of £73.5bn, which is only just lower than the £77.4bn which we had borrowed by this time last year. Total borrowing last year reached £154.6bn, although the independent Office for Budget Responsibility is forecasting total borrowing of £149bn in this financial year.

What, then, do the cuts mean for the UK economy? Firstly, it is estimated that just less than half a million jobs will be lost in the public sector. Many of these jobs are relatively low-income jobs, and many of them are likely to be concentrated in regions such as the north-east which are already suffering. The government also announced an average 19% reduction in the budgets of government departments, and an additional £7bn in additional welfare costs, which will hurt the poorest members of society the most.

David Cameron has been calling on the private sector to fill the gap in the jobs market. And at the end of last week, Work and Pensions Secretary Iain Duncan Smith told the unemployed that they should “get on a bus” to look for jobs. Presumably, they would be able to see them from the window as they went past. The statement was very reminiscent of that made by Lord Tebbit in 1981, when he suggested that the unemployed should “get on their bikes.”

I suppose that must be some mark of economic progress that they can afford buses now rather than going by bike, and probably a conservative government in thirty years time will be telling them to take taxis.

The photo shows the unemployed looking for jobs from their bus as they go past the Bank of England.

But where are the jobs coming from? According to official figures, there are 2.45 million people out of work. Add to this the fact that 1.14 million are working part-time when they wish to work full-time and that another half a million public sector jobs are going. (This doesn’t factor in any multiplier effects from the cuts, such as the loss of contracts by private sector firms selling to government.) Doing the sums shows that we will have just over 4 million people seeking full-time jobs. Currently the number of job vacancies in the UK total 459,000.

Notice the discrepancy here? There are going to be a hell of a lot of unsuccessful bus journeys being made!

Andrew Smith, chief economist at KPMG, says that the government’s forecast of 2.25% growth next year is relying on “heroic assumptions”. It assumes that both businesses and consumers will continue spending.

But, the figures are already showing a decline in retail sales. In August these fell by 0.7% and in September they fell by an additional 0.2%. So, two months of falling retail sales. A survey by research group Markit has just shown that over a quarter of households surveyed said their finances had deteriorated since September as opposed to 7% who thought they were better off.

We await the provisional growth figures for third-quarter GDP from the ONS tomorrow with some anticipation. But, do not expect a pleasant surprise.

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